But the most important thing I want to note here is that given the level of concern that clearly exists with regards to security within the financial sector, the government now has a duty to respond to this crisis by providing the market with more bonds. What the markets are clearly indicating is a very high level of panic and when fear of this order exists then it is the job of the government to dispel it. It has just one way it can do that. It can underpin the risk in the market by providing the risk-free savings mechanisms that it alone can create, which are government bonds. Companies, individuals and pension funds are all desperate for these bonds at present, and with good reason: the alternatives that they face are highly risky, as is cash as far as they are concerned, because those who are panicking do not enjoy a guarantee that their deposits in our banks are safe. This is why they need bonds. And the only responsible thing for the government to do is to supply those bonds.
Government has £400 billion of those bonds parked at the bank of England. Time to sell ’em, eh?
Then every person in the market would know that they could have the security for their savings that they want. And simply knowing that would stabilise markets.
Will the government do this? I very much doubt it, because it’s not what governments have done. But it’s risk-free, responsible and vastly cheaper than allowing panic to grow and credit markets to be de-stabilised.
Yep. So, let’s do it.